Greece’s risk of default was raised to 50 percent by Moody’s Investors Service as European officials rushed to put together the second bailout plan in two years to stave off renewed financial turmoil in the region.

Moody’s downgraded Greece to Caa1 from B1, putting it on a par with Cuba, according to a report published late yesterday. The move came after policy makers considered asking investors to reinvest in new Greek debt when existing bonds mature.

Twelve years after the currency was started, European leaders are trying to prevent the euro area’s first sovereign default. A 110 billion-euro ($158 billion) rescue in 2010 failed to prevent an investor exodus from Greece, and the country now faces a funding gap of 30 billion euros of bonds next year with its 10-year borrowing cost above 16 percent.

“Taken together, these risks imply at least an even chance of default over the rating horizon,” Moody’s said in a statement. “Over five-year investment horizons, around 50 percent of Caa1-rated sovereigns, non-financial corporate and financial institutions have consistently met their debt-service requirements. Around 50 percent have defaulted.”

Vincent Truglia, managing director of global economic research for Granite Springs Asset Management LLC in New York, says the Caa1 rating “causes problems for certain investors” that are not allowed to hold such low-rated debt. Truglia, a former head of Moody’s sovereign risk unit, said the ratings move could affect the way investors view large European banks that hold Greek debt.

“We’re talking about an extraordinarily low rating,” he said in a telephone interview.

European stocks slumped, with the Stoxx Europe 600 Index slipping 0.9 percent to 275.80 as of 8:39 a.m. in London. The MSCI Asia Pacific Index retreated 1.7 percent. European markets including Switzerland, Austria and Sweden are closed today for the Ascension Day holiday.

These are especially interesting times. For example, debt seems to be on the mind of a lot of people. That's ironic at a time when, as one CEO recently told me, "There is a sale on money." (One company with which I am familiar acted on that belief recently by borrowing a billion dollars that it didn't need and giving it to shareholders in the form of a stock buyback.) The US government and other borrowers are beneficiaries of this phenomenon, at least for the moment.

My favorite barber, an immigrant from Greece with a love for his adopted country that more than matches his devotion to the country of his origin, tells me his friends and relatives in Greece lead better lives than they can afford. Their wages are high, their benefits even higher, and their taxes are low (because, he claims, they avoid paying them). Banks in other countries have to finance Greek lifestyles. It's a form of wealth redistribution across borders as long as the hammer of bankruptcy doesn't fall on the country.

The phenomenon doesn't only apply to Greece. One recently published study of debt around the world highlights the challenge. Its authors conclude that government debt may become unsustainable over the next 25 years if there are no changes in current tax rates or government benefit programs in retirement and health care—a big "if". Stating that net debt (financial liabilities minus financial assets) levels of 200 percent of gross domestic product are unsustainable, the authors project that, given current policies, the US will experience ratios ranging from 155 percent to 302 percent in 2035, depending on assumptions regarding growth. Euro zone nations, where some action already has been taken, would experience lower ratios. Emerging economies would experience the lowest ratios of all. Among developed economies, only Japan would approach the ratios of the US. Even assuming that all such long-term projections are never accurate, is it possible that a country could fall into bankruptcy?

What does national bankruptcy mean? Years ago economists told us that the national debt in the United States was not important because we owed it to ourselves. If it became worthless, those holding the debt—presumably the banks and most wealthy among us—would lose out to those who benefitted from the deficits causing the failure. Of course, others now own nearly half of US debt and could be in a position to impose onerous penalties on the country and its economy.

But how enlightening would it be for a country like Greece—small enough to serve as a kind of laboratory for the rest of us—to fail? I assume it would be a Chapter 11 bankruptcy, a workout, as we say in US law. Quite likely, lenders would be left in control of the workout. Would Euro zone agencies and lawmakers, acting on behalf of lending banks, have to take drastic action to force Greece's government to impose new laws and collect the taxes? This would be a blow to democracy, but would it be a good lesson in fiscal responsibility for the rest of the world? Is this what it would take to bring us to our fiscal senses? Is it time for a national bankruptcy? Or would a restructuring of the Greek debt (a smaller redistribution of wealth) without imposing bankruptcy be a better solution? What do you think?

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Greece was branded with the world’s lowest credit rating by Standard & Poor’s, which said the nation is “increasingly likely” to face a debt restructuring and the first sovereign default in the euro area’s history.

The move to CCC from B reflects “our view that there is a significantly higher likelihood of one or more defaults,” S&P said in a statement yesterday. “Risks for the implementation of Greece’s EU/IMF borrowing program are rising, given Greece’s increased financing needs and ongoing internal political disagreements surrounding the policy conditions required.”

“Greece will default -- it’s a question of when, rather than if,” Vincent Truglia, Managing Director at New York-based Granite Springs Asset Management LLP and a former head of the sovereign risk unit at Moody’s, said in an interview. “It’s a basic solvency issue rather than a liquidity issue. Only a debt writedown will do.”